ISLAMABAD, March 25 (Reuters) - Pakistan, seen as critical to efforts to stabilise Afghanistan, is finding it difficult to work with President Hamid Karzai due to mistrust and is reaching out to others to advance the peace process, senior Pakistani Foreign Ministry officials say.

Pakistan is uniquely positioned to promote reconciliation in neighbouring Afghanistan because of its long history of ties to militant groups fighting to topple Karzai.

But Afghanistan has accused Pakistan of backing the Taliban to further its aims, fearful it will try to install a pro-Islamabad government in Kabul, a charge Pakistan denies.

"Right now, Karzai is the biggest impediment to the peace process," a top Pakistani Foreign Ministry official told Reuters. "In trying to look like a saviour, he is taking Afghanistan straight to hell."

Karzai has said he wants peace on his own terms and could also be worried that the United States might cut a quick and risky deal with the Taliban, eager to get the bulk of its forces out of the country by the end of next year.

Either way, Pakistani officials say they are discouraged by what they call Karzai's erratic statements and provocations, apparently designed to make him appear more decisive at home in dealing with the unpopular war, now in its 12th year.

Failure to reach an agreement between the Afghan government and insurgents would increase the chances of prolonged instability and even a push by the Taliban to seize power. The last time they did it, in 1996, it was with Pakistani help.

The stakes are also high for Pakistan, a strategic U.S. ally seen as vital to Washington's global war on militancy. It fears turmoil in Afghanistan could spill over the border and energise homegrown militants seeking to topple the government.

"I have absolutely no doubt that there will be complete chaos in Afghanistan if a settlement is not reached by 2014," said the Foreign Ministry official. "Afghanistan will erupt. And when that happens, Pakistan will have to pay."

Pakistan and Afghanistan have long been suspicious of each other. A recent period of warmer relations raised hopes they could work together to lure the Taliban to negotiations.

Aziz Khan, a former Pakistan ambassador to Afghanistan, said it was not right to pin all the blame on Karzai.

"Everyone is hedging their bets at this point: the Pakistanis, the U.S., the Afghan government and the Taliban," he said. "No one has been clear about what they want in Afghanistan."

Although Pakistan will maintain contacts with Karzai, it is stepping up engagements with opposition figures, the Taliban, Washington and other parties to promote reconciliation, Foreign Ministry officials said.

"There is no other option but reconciliation - with or without Karzai," said the top Foreign Ministry official. "If he continues to be this stubborn, him and his High Peace Council will naturally be sidelined."

AFGHANS SAY KARZAI COMMITTED TO PEACE

A second senior Pakistani Foreign Ministry official cited several examples of how Karzai has blocked peace efforts. At a conference in January, for example, Karzai insisted there would be no more "back door" peace contacts.

The official also accused Karzai of delaying the opening of a Taliban office in Qatar that could be used in the reconciliation efforts. He did not say why.

Afghan officials say Karzai is fully committed to the peace process, but wants to ensure it is Afghan-driven.

Responding to the accusation that Karzai is an obstacle to peace, an Afghan government official said: "We totally reject this. It is a baseless allegation."

Analysts say Pakistan has a long-standing fear of an Afghan government close to its old foe, India. Karzai has said "no foreign elements or entities should attempt to own Afghan peace efforts". He also warned: "I am not going to allow other attempts to succeed."

So far, Karzai has failed to secure direct talks with the Taliban. He has repeatedly asked for Pakistan's support. Pakistan has helped Taliban representatives to travel to Qatar to make contacts with U.S. officials.

At the same time, Pakistan has been building bridges with the Northern Alliance, a constellation of anti-Taliban figures who have traditionally been implacable critics of Islamabad, and close to India.

But Kabul wants Pakistan to hand over top Afghan Taliban leaders which could prove useful in the peace process.

"All Taliban leadership are sitting in Pakistan. We need full cooperation of Pakistan in order for them to be allowed to travel and be allowed to talk," Afghan Foreign Minister Zalmay Rassoul told a news conference in Sydney.

Karzai's remarks during interviews and in meetings with Pakistani officials have led Islamabad to conclude he has become too inflexible. They cite Karzai's recent accusation that the United States was colluding with the Taliban.

"What does Karzai have to show for his effort to bring insurgents to the table? We've released prisoners. We've facilitated talks," said another senior Foreign Ministry official.

Late last year, Pakistan released more than two dozen Taliban prisoners who could help promote peace. It was the clearest signal ever that Pakistan had put its weight behind the Afghan reconciliation process.

Pakistan's army chief has also made reconciling warring Afghan factions a priority, military sources say.

After the prisoner releases, Afghan officials said Pakistan shared Kabul's goal of transforming the insurgency into a political movement. Such remarks signalled unprecedented optimism from Kabul.

"JOKER IN THE PACK"

But despite that, old suspicions that Pakistan uses Afghan insurgents as proxies to counter the influence of India have not been laid to rest.

Some Afghan officials believe Pakistan may still be hedging its bets and that even the prisoner releases were just a way to retain influence over the Taliban.

"The key fact here is that Pakistan has been investing in this dirty game of trying to control Afghanistan for the last thirty years through terrorist proxies," said a senior Afghan government official.

"It is now trying to reap the harvest of its investments by waiting for what they see as the inevitable complete departure of the international community from Afghanistan and keeping their proxy assets, primarily the Taliban, for the post-2014 period."

During talks last month at British Prime Minister David Cameron's official country residence, Chequers, Karzai and Pakistani President Asif Ali Zardari agreed to consult on future Afghan Taliban prisoner releases.

But Pakistani officials now complain that Karzai does not appreciate the goodwill gestures.

Another Pakistani Foreign Ministry official said the government was incensed by an interview Karzai gave to the British press after the Chequers meeting in which he said the peace process was being impeded by "external forces acting in the name of the Taliban", a veiled reference to Islamabad.

So exasperated was Pakistan with Karzai that at a meeting this month between Zardari, the army chief and senior officials, one top leader described Karzai as "the joker in the pack", according to an official who attended.

"He is trying to act as if he has many cards in his hands," said the first Foreign Ministry official. "But he should realise he is only hurting his country." (Additional reporting by Hamid Shalizi in KABUL; Editing by Michael Georgy and Nick Macfie)

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